{"text":[[{"start":6.2,"text":"When we talk about American financial hegemony, we almost always talk about the US dollar. The resilience of the dollar system is the subject of continuous speculation. But there is a better way to frame the issue: the US’s role as the world’s indispensable investment destination. The world’s savings are pulled to the US as if by economic gravity, crowding into American stocks and bonds and providing its economy with a key support."}],[{"start":31.88,"text":"If the gravity should weaken, the consequences would be large. The pillars of today’s US economy — consumer spending and AI investment — are wired into the stock market. Consumption is boosted by the “wealth effect” of plump retirement accounts. The data centre boom can only rip along while “hyperscaler” stock prices give assent. And it hardly needs to be said that weaker global demand for Treasury bonds, and correspondingly higher government borrowing costs, could wreck an already wobbly fiscal outlook."}],[{"start":61.46,"text":"Over the past 20 years or so, US stock markets have crushed the field. Since the depths of the financial crisis, US stocks have returned almost 17 per cent a year, lapping markets in Europe, Japan, the emerging world and China. But lately things are changing. In the past two years, global stock returns have been comparable to the US, or better, especially when measured in local currencies. Meanwhile, Treasuries have come under pressure this summer, with yields on longer maturities pressing against or passing the top end of the trading range that has held since the 2021–2022 inflation."}],[{"start":97.92,"text":"What’s happening? For stocks, there is some discomfort with the AI trade that, just a year or two ago, seemed to raise all boats. Investors can’t afford to skip the trade altogether, but neither is there enough new money to push markets out of the trading range they’ve been in all summer. Maybe high US valuations are starting to pinch, too. For Treasuries, the ugliness of the fiscal situation and the indifference of Congress and the Trump administration (other than some pointless window dressing by the Treasury secretary) seem to have finally focused debt investors’ minds. Whether in the form of inflation, a debased dollar, or some other adjustment, the deficit chickens will come home to roost."}],[{"start":135.8,"text":"There cannot be a mass abandonment of US assets, just as there cannot be a mass departure from the dollar. They are simply too big and structurally superior to the alternatives. On the equity side, the US has a combination of advantages nowhere else can touch: great universities; a reliable legal system; relatively low regulation; abundant energy; a huge domestic market; relatively attractive demographics. These will persist even if the AI boom should fizzle and stock markets face a severe correction. And when US public assets — Treasuries — become less appealing, demand for US private assets (stocks and corporate bonds) may increase."}],[{"start":178.32,"text":"So cut Treasury exposure, and double down on US stocks? Not so fast. Public and private assets are conjoined in several ways. Most basically, as Treasury prices fall and both nominal and real (inflation-adjusted) yields increase, the discount rate applied to stocks’ future cash flows rises — striking at the heart of the value proposition of the expensive tech stocks that hold up the US market. And hyperscalers from Alphabet to Oracle move to a capital-intensive business model and finance it with debt. So, because Treasury yields are an input for corporate borrowing costs, there is now more connective tissue joining the biggest companies in the stock market to volatility in the Treasury market."}],[{"start":220.56,"text":"Paradoxically, there is even a risk for stock markets if government deficits are brought under control. Government deficits tend to appear on the other side of the national ledger as corporate surpluses — that is, profits. Closing the deficit will very likely be accompanied by a painful drop in earnings and therefore share prices in the short term. And the longer deficits are allowed to proliferate the harder this adjustment will be."}],[{"start":244.6,"text":"Meanwhile, alternatives to the US are looking more attractive. Profits at European companies are accelerating. In Japan, corporate governance reform has momentum. Emerging market countries’ own fiscal situations have, in many cases, improved. Being overweight America could look less and less like the default option, and this could upset the country’s economic equilibrium."}],[{"start":266.92,"text":"When despairing about America’s public finances, it is easy to be comforted by its dynamic private economy, the world-beating markets that economy supports, and the global capital it attracts. But poor fiscal mismanagement puts the whole package at risk."}],[{"start":286.2,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1787814303_7452.mp3"}